Westpac: Higher For Longer RBA Now More Appropriately Priced

Westpac write “pricing for both the RBA and Fed shifted significantly last week, with markets in both pushing the terminal rate higher and further out.”

• “For the RBA, the September meeting minutes presented a detailed account of the Board’s deliberations and their assessment of risks. In recent months, the Board has stopped describing its considerations for policy – the choice between remaining on hold and a rate hike - a “finely balanced”. Rather, it has become increasingly clear that the Board view the case for remaining on hold as the “stronger” argument, in step with their growing confidence in navigating a soft landing.”
• “While the Board still conclude that “some further tightening in policy may be required should inflation prove more persistent than expected”, the hurdle for the Q3 CPI report or interim Monthly CPI Indicators (due Wednesday) to raise alarm is high.”
• “Even so, pricing shifted aggressively, with a further hike factored-in to the forward profile by 2Q24. Interestingly, that move was larger than pricing for the Fed after it delivered a hawkish pause, perhaps because there has been a persistent fear that the RBA has not yet done enough on the tightening front. We now regard market pricing as more appropriately reflecting “high for longer” in either market.”